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Matt recently deposited $20,000 in a savings account paying a guaranteed interest rate of 4 percent for the next 10 years. Required: If Matt expects his marginal tax rate to be 22 percent for the next 10 years, how much interest will he earn after-tax for the first year of his investment? How much interest will he earn after-tax for the second year of his investment if he withdraws enough cash every year to pay the tax on the interest he earns? How much will he have in the account after four years? How much will he have in the account after seven years?

Respuesta :

Answer:

$24,799

Explanation:

After one year, Matt will have earned:

= $20,000 × (1-0.22) × 4%

= $624

2) in second year, Matt will earn: -

= $20,624 × (1-0.22) × 4%

= $20,624 × 0.78 × 4%

= $643 .46

3)After 4 years, Matt will earn:-

= $20,000 × {1 + 4% × (1-0.22)}^4

= $22,615

4) After seven years, Matt will have:-

= $20,000 × [1 + 4% (1-0.22)]^7

= $24,799

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